Overnight index swap rates at 10-month high; government bond yields rise

Indian overnight index swap (OIS) rates rose to their highest levels in 10 months on Monday due to offshore paying and triggering of stop losses, dealers said.

The one-year swap rate hit 7.10 per cent on Monday, the highest level since March 9, while the five-year swap rate rose to 6.85 per cent, a level last seen on November 9, 2022.

Consequently, the yield on the benchmark 10-year government bond rose 4 basis points (bps) to settle at 7.25 per cent, against 7.21 per cent on Friday.

“There was not much trigger in the market, except paying (fixed rates) in OIS rate markets,” a dealer at a state-owned bank said. “And there wasn’t any receiving (fixed rates) interest on the domestic front. Mutual funds had been receiving till Thursday, but that too faded,” he said.

One-year swap rate has jumped 13 bps so far in September, whereas the five-year swap rate has jumped 19 bps.

“Some offshore paying was there, and people have stop-loss at 6.77-6.78 per cent (five-year swap rate), those who had received fixed rates. Domestic players also paid fixed rates, that is why the rates rose,” a dealer at a primary dealership said.

“In one-year, people had hoped the incremental cash reserve ratio (I-CRR) would come down to 5 per cent, as against 25 per cent reduction, so people paid there also,” he said.

The Reserve Bank of India had decided to discontinue the I-CRR and said the funds that were impounded would be returned to banks in phases ahead of the festival season during which demand for cash rises.

Of the total I-CRR maintained, 25 per cent will be disbursed on September 9, another 25 per cent on September 23, and the remaining 50 per cent will be released on October 7.